Wednesday, June 24, 2009

Capital goods orders—the seedcorn of future productivity—have been relatively stable to somewhat higher so far this year, as the first chart shows. That's another "dog that didn't bark," since with all the doom and gloom out there it shows that businesses are not completely retrenching. When confidence in the future once again builds, businesses have a lot of profits that they have been accumulating which can be used to fuel new capex. As the second chart shows, corporate profits after tax have doubled since late 2001, but as the first chart shows, capex has not risen at all on balance.

If the stimulus plan had been thought through instead of rammed through, it would have paid attention to details such as this. It would have given businesses an incentive to invest in the future by cutting corporate taxes, and that would probably have resulted in lots of new spending on the "shovel-ready" projects any good corporation has sitting on the shelf, waiting for the right environment.

So this is all a sad story, one of opportunities passed over. But it is not a story of collapse. It goes back to one of the key factors that drove this financial crisis, and that was a lack of confidence. If confidence can be restored, new investment spending will follow. It's never too late for that.

16 comments:

"It goes back to one of the key factors that drove this financial crisis, and that was a lack of confidence."

PLEASE

It has very little to do with lack of "confidence" and everything to do with lack of qualification or desire to borrow.

My guess is you have not walked into a bankruptcy court lately...but very few of those in there are there due to lack of confidence....but ostensibly for lack of money and ability to borrow.

Alstrynomics defines this as Zombulation....the point where one runs out of money or ability to access credit OR the point where government taxes you 100% of your income and assets.....in either case, you are broke.

Yes, orders are seemingly up, but cancellations are running at record highs....my buddies and neighbors are CEOs and owners of companies... this is the feedback currently coming at Alstry nationally.

HOMEBUILDERS have slashed prices over the past couple years...in many communities across Amercia homes are selling for half of what they were just a short time ago.

Even with unprecedented discounting....unit volumes are evaporating....down 75-80%. Muliply a 80% decline in unit sales with a 50% decline in pricing and you will get a reality NEVER seen before.....even in The Great Depression era.

Further, if any of you have any friends who are employed as architects.....ask them how there book looks after September 1st.....based on my survey nationally.....there is not much of a book both comercial and residential.

SAN FRANCISCO (MarketWatch) -- Berkshire Hathaway Chairman Warren Buffett told CNBC Wednesday that he has trouble seeing so-called green shoots of economic recovery in the U.S. The risk of a collapse in the financial system has past, but "we haven't got the economy moving again," he explained. When asked whether Ben Bernanke should be re-appointed as Federal Reserve Chairman, Buffett said "I don't see how you could do better." He also said the stock market is attractive versus other types of investments over a long-term period such as 10 years. Fixed-dollar investments will be eaten away by inflation over the long term, Buffett added. "We could see a lot of inflation," Buffett warned.

No Green shoots and a lot of inflation.......OUCH!!!!! 10 years is a good time frame in my opinion.

Just so you know guys, as a Proud American....I feel it is my duty to warn you about how bad it REALLY is out there.....despite whatever green shoots you may be smoking;)

From Calculated Risk citing the Washington Post:

A growing number of American homeowners are falling into financial limbo: They're badly behind on payments, but their banks have not yet foreclosed.

The backlog of seriously delinquent mortgages, which so far affects about 1 million borrowers, is a shadow over hopes for a rebound in the nation's housing markets. It masks the full extent of the foreclosure crisis ...

"I have even begged them for a foreclosure," delinquent mortgage-holder Charlotte Jensen said. When she realized she couldn't save her Glen Allen home last year, she filed for bankruptcy, packed up her family and moved out. Nearly a year later, Bank of America has yet to take back the home. ...Some of the backlog reflects the inability of lenders to keep up with the swelling rolls of delinquent properties.

It is already so bad, lenders can't keep up.........just wait until the millions of government workers and health care employees get fired!!!!

Alstry: if you're going to comment, please can you stay on-topic (which was durable goods orders)? And if you're going to claim that you're data-driven, please present some actual data (e.g. the Architectural Billings Index) rather than a handful of unsubstantiated anecdotes?

Scott, what are your thoughts on the implications of this information on small investors? June 24, 2009Abandoning a sinking ship?Rick MoranUS corporation executives certainly aren't showing much confidence in The One's ability to bring the economy back.

Anuj Gangahar and Michael Mackenzie of the Financial Times are reporting that many exes are cashing out their shares in anticipation of a continued downturn in the world economy:

Executives in charge of the largest US companies sent a signal of their concerns by selling far more shares than they bought this month, according to data based on Securities and Exchange Commission filings.

Share sales by so-called company insiders are outstripping purchases so far this month by more than 22 times. TrimTabs, the investment research company, said insiders of S&P 500 listed companies have unloaded $2.6bn in shares in June, compared with $120m in purchases.

"The smartest players in the US stock market - the top insiders who run public companies - are not betting their own money on an economic recovery," said Charles Biderman, chief executive of TrimTabs.

I would say to those rich, white guys have a little faith, brothers! Racking up trillions in deficits and double digit trillions in debt over the next decade can be good for you if you only accept the Word of The One.

Oh ye of little faith, ye shall be proved wrong as the policies of the Messiah bear fruit and dollars multiply like randy rabbits.

Scott --- two questions. First, while I appreciate the durables number was good, surely the historically low levels of Cap-U are going act as a drag on capex? Secondly, the Cap-U figures are for manufacturing, which is c. 15% of the economy. Do we have a comparable measure for services?

MW: I think you answered your own question. Very low levels of capacity utilization reflect conditions in only a small part of the economy. There is no measure I know for cap-u in the much larger service sector. Capex covers all sorts of things that go beyond the manufacturing sector.

It may be simplistic, but I view capex as more of a barometer of the confidence of U.S. businesses than anything else. Things could be a lot better, to be sure, but at least they are not collapsing. Things must stabilize before they start to improve.

Insider selling has never been a predictable indicator of market trends. Insiders sell for a massive variety of reasons -- real estate purchases, college expenses for the kids, estate/retirement planning, sailboat/yacht, paying bills...

The only semi-reliable indicator tied to insiders is when they buy, as they buy for only one reason and that's to make money.

I understand your point that insiders buying to make money would be a better indicator because that's the only reason they would do it.But they are not doing it. If the market is priced for disaster and that's not what's coming and money is "growing on trees" why are they not buying? The Fed seems to be trying to force people to buy and they're still not doing it.I'm very confused , it seems as if the government is so interested in its own power grab that it's trying to destroy the economy.

KC: I question whether you can make a blanket statement to the effect that no insiders are buying. I don't have the statistics to refute you, but I'd be willing to bet there are numerous instances of insider buying at distressed prices.